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Saanya Vashishtha,
Jindal Global Law School
Abstract
The main purpose of this paper is to discuss the concept of Corporate Social Responsibility, the roles, issues, benefits and other aspects. It was during industrialization in 1880’s, the concept of social responsibility of companies was evolved which has now become what we call as Corporate Social Responsibility (CSR). CSR states that the purpose of business is to generate value for its shareholders as well as value for society, which manifests as a win-win situation. CSR helps build a positive relationship with all the stakeholders and also helps in gaining the trust of the consumer. This leads to many organizations running campaigns which allow them to both not only build the trust of their consumer but also indulge in greenwashing practices.
Keywords - Corporate Social Responsibility, Sustainable, stakeholders, Greenwashing
Introduction
Corporate Social Responsibility (CSR) is a legal commitment under section 135 of the companies Act[1] which aims at moving the company towards ethical and sustainable practices and contributing the society positively. While CSR is a commitment made by the company to positively impact the society, it is increasingly being used as a tool for greenwashing practices which is essentially deceptive or misleading practices where companies falsely claim to be environmentally friendly or socially responsible. Greenwashing not only misleads consumers but also undermines genuine efforts made by other businesses in addressing environmental and social issues.
The greenwashing practices used by companies are of different kinds from doing exaggerated claims of sustainability to using misleading labels. Considering the global climate crisis and the social inequality, the CSR becomes an important tool for addressing these issues. Thus, it becomes pivotal that the companies implement the CSR practices mandatorily through sustainable practices and equitable policies. Thus, Companies must not just use CSR as a marketing tool but also to foster genuine sustainability efforts and ensure a more responsible and equitable business landscape for future generations. By genuinely committing to CSR, companies can build trust with stakeholders and contribute to a more responsible and equitable business landscape for future generations.
CSR intersection with Greenwashing practices
Background
With the advent of legal provisions mandating CSR, many businesses globally have started engaging in CSR initiatives. This has the effect of educating the public more about social and environmental issues. This has further resulted in companies investing in marketing which highlights the company’s involvement in sustainable development and a positive contribution towards the society and the planet. Brands like Mama Earth, Syska LED, Zara, etc. have marketed their brands as contributing towards a sustainable future and keeping in mind the climate challenges. This promise by brands towards a sustainable future makes the brand more attractive for the consumer who also indirectly want to make an impact by making a conscious choice while purchasing. Thus, for the sake of competitiveness it becomes important that the brands also market their CSR initiatives. However, the peril lies in the partial disclosure or misleading information that maybe presented by the brands in order to look attractive to both the consumers and the stakeholders.
The Companies indulge in CSR initiatives because in today’s day and age where the globalization has impacted in each and every person’s life, it has also had a pivotal role in shaping the opinion of the individuals and making the information accessible to them in a more easy and timely manner which also allows the consumers to make a more informed decision. Thus, with the attractiveness of the company increasing through its contribution in making the society a better place to live, it impacts the businesses in an overall manner. The consumers want to buy the products from a company which looks more attractive considering the positive future, the investors want to invest in a company which aims at working for a sustainable future looking at the market trends, company can easily find brand ambassadors, collaborations, and marketing initiatives if it indulges in such initiatives. Thus, the CSR has become a necessary poison which the company must take no matter the cost.
This leads to the companies at times trying to greenwash their initiatives considering it would make the company look more attractive while also not bruising the profits of the company which the company might think would be hit if it complies with the CSR initiatives thoroughly. This can be done through various ways. Examples of this can be-
A brand-new shower curtain is packaged in plastic and marked "recyclable." The shower curtain and the package's recyclable status are both unclear. If any portion of the packaging or its contents, except from minor components, cannot be recycled, the label is false in either scenario.
There is a label on an area rug that reads, "50% more recycled content than before." In actuality, the producer upped the recycled component from 2% to 3%. The message gives the idea that the rug contains a lot of recycled fiber, which is incorrect even though it is technically true.
There is a label on an area rug that reads, "50% more recycled content than before." In actuality, the producer upped the recycled component from 2% to 3%. The message gives the idea that the rug contains a lot of recycled fiber, which is incorrect even though it is technically true.
A garbage bag is marked as "recyclable." rubbish bags are extremely unlikely to be reused for any purpose again because they are typically not segregated from other rubbish at the landfill or incinerator. Because it asserts an environmental advantage where none actually exists, the claim is false.
Brands found in violation of their CSR initiatives and actually indulging in greenwashing practices are brands like Volkswagen which was indulged in the Dieselgate scandal wherein it was accused of installing cheat devices in their diesel engines to manipulate emissions tests. Another example wherein this could be seen through the case of Innocent drinks wherein it was shown in the advertisement that drinking those would lead to environmental benefits, however, the evidence for the same could not be proved in the court. Another example can be seen through the example of Zara which through its code of conduct has prohibited child labour but was found in violation of the same.
CSR and Transparency
Transparency encompasses relevant facts not being concealed in an organization's reporting and that the external consequence of its actions may be determined from that information. Transparency becomes extremely important in case since the repercussions of the company on the climate are dependent on this reporting mechanisms. Further, since the external users of such material lack the background knowledge and information provided to internal users, transparency is especially important to them. Therefor, transparency becomes pivotal as it also contributes to the process of recognizing organizational accountability for the effects of its actions on the outside world as well as the process of delegating authority to outside stakeholders.
Challenges and Criticisms of CSR
Regional Disparity- Spending on CSR is mostly focused in states like Maharashtra, Tamil Nadu, Gujarat, and Karnataka, among others. These States accounted for almost 32% of overall spending between 2014 and 2019. In a more recent report, the Centre for Social Impact and Philanthropy at Ashoka University found that spending in these 4 States was around 54%. The resource- and population-poor, populous states of Uttar Pradesh and Madhya Pradesh receive substantially less.
Sectoral Disparity- An examination of CSR spending (2014–18) shows that, despite the fact that extractive industries like mining operate in multiple States in a way that is environmentally harmful, only 9% of CSR money was allocated to the environment.
Lack of Transparency and Information- Many corporations fail to take sufficient steps to share pertinent information. This becomes a barrier to establishing trust between businesses and communities. Any CSR project must be transparent in order to succeed. The Standing Committee on Finance has noted that it is difficult to find and that there is a lack of information regarding corporate social responsibility (CSR) spending.
Green washing- Many businesses still think that CSR is solely required by law. They participate in unnecessary activities that have no discernible negative effects on the environment or communities. They do, however, provide false information and then make an effort to sway the opinions of their stakeholders and the general public. 'Green washing' has been used to describe this. Such events are becoming more prevalent when coercive enforcement measures are absent.
Lack of Consensus and Cooperation- There is a lack of agreement among various local organizations and corporate entities, which causes businesses to duplicate their CSR activities. This encourages unnecessary competition among businesses, which is counterproductive to the primary goal of creating value for society.
Lack of Community Participation- Many businesses are leading CSR initiatives from the top down with minimal input from the intended beneficiaries, the community. A disconnect results from this. Instead of doing what is best for communities, businesses often take projects that they deem important.
Lack of Strategic Planning- Companies are unable to have a significant impact on their CSR due to a lack of strategic planning, appropriate experimentation, innovation, and participation. They cannot deliver results with a significant effect since they are unable to recognize appropriate investment proposals. Corporate entities must be aware of the difficulties that its population confronts in order to make wise investments.
CSR practices have gained popularity due to their potential benefits, but they face challenges and criticisms. One major issue is the lack of standardized metrics and reporting frameworks, making it difficult to compare and evaluate companies' CSR performance accurately. Critics argue that CSR initiatives are just "Greenwashing" tactics, using superficial actions to create a positive image without substantial changes to core business practices. However, these challenges should not undermine the importance of CSR; they highlight the need for continuous improvement. Stakeholders should demand transparency and accountability from companies, as CSR initiatives can be seen as public relations tactics to enhance a company's reputation without addressing the root causes of social and environmental issues. Therefore, stakeholders must remain vigilant and demand authenticity in CSR practices.
Consequences of Greenwashing
Greenwashing is a practice that can lead to a loss of trust and credibility for companies involved. It further causes the consumers to become skeptical and hesitant to support or purchase products from these specific companies as they see these companies in bad light which makes the company not only lose out on consumers but also on the collaborations, marketing and investors. This can further undermine the efforts of businesses that are genuinely sustainable businesses. Further, this shall not only have short term but also long term impacts on the brand as the consumer loses the trust and loyalty which further leads to a decline in customer loyalty and a negative reputation, which can affect a company's bottom line and market share.
Greenwashing can also have negative effects on the environment and society as when the companies involve in greenwashing they divide the attention from businesses which are involved in a sustainable business and further increases the environmental damage and other related processes
Further, in cases where the companies are caught in greenwashing practices it shall not only result in legal suits with hefty damages but also negative reputational damages which shall then further impact their brand image making it less attractive for all the stakeholders.
Efforts and Initiatives to Address CSR and Greenwashing
In order to crackdown on greenwashing practices there has been a development of certifications and standards for CSR practices. Organizations like the Global Reporting Initiative (GRI) and the International Organization for Standardization (ISO) have created guidelines and frameworks for companies to ensure transparency and accountability in their CSR efforts. These certifications help consumers differentiate between genuine sustainable practices and mere marketing tactics.
Industry collaborations and partnerships have also been formed to promote responsible business practices, encouraging companies to adopt more sustainable strategies and reduce their environmental impact. Public awareness and demand for genuine CSR practices have led to a growing number of companies voluntarily adopting CSR initiatives and integrating sustainability into their business strategies. Governments and regulatory bodies have started implementing stricter regulations and policies to ensure that companies comply with CSR standards, further incentivizing businesses to prioritize sustainability and social responsibility.
NGOs, governments, and consumers play a crucial role in holding companies accountable for their CSR practices by conducting independent audits and assessments, advocating for transparency and ethical behavior. Governments have the power to enforce regulations and impose penalties on non-compliant companies, creating a strong incentive for businesses to prioritize CSR. Consumers also play a significant role in holding companies accountable by making informed purchasing decisions and supporting brands that align with their values of sustainability and social responsibility.
Consumers have become more conscious of the impact their purchasing decisions have on the environment and society, demanding greater transparency and sustainability from companies. As a result, companies are incorporating CSR into their core business strategies and operations, investing in sustainable practices such as reducing carbon emissions and implementing fair labor practices. CSR initiatives not only enhance a company's reputation but also attract and retain top talent seeking employment with socially responsible organizations. As a result, CSR has evolved from being a mere philanthropic Endeavour to a strategic tool for companies to gain a competitive edge in the market.
Best Practices for Increasing CSR Effectiveness
Integration of CSR into the core business strategy and Avoiding Greenwashing
Transparency and accurate communication of CSR initiatives to ensure effectiveness
Regular monitoring and reporting of CSR initiatives and performance
Collaboration with stakeholders to ensure meaningful and impactful CSR strategies
Engaging in continuous improvement and adaptation of CSR practices based on feedback and evolving societal needs
Ensuring continuous innovation to stay ahead of changing societal and environmental expectations.
Conclusion
There is evidence that the ethical behavior of businesses has an increasing impact on stakeholder choices. When the workplace climate is toxic, starting philanthropic trusts and foundations is not the company's goal. Currently, India is a big country, making it difficult for one single body to affect change. Large businesses cannot continue to ignore their surroundings and concentrate solely on their economic performance. Therefore, the overarching conclusion is that businesses must be mature and understand that they must implement socially responsible policies.
To sum up, accepting CSR as a business necessity must not be done reluctantly or half-heartedly. Instead, it must be practiced fervently and with a sincere enthusiasm. Doing so undoubtedly helps the businesses have a lasting, significant impact on society, and its future is promising in the years to come. After all, business is conducted by, for, and on behalf of the populace.
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